Get A Life Raft
Article by: Brent C. Diefenderfer
The travails of the housing market in recent years are well documented. The prevalent symbols of this downturn are the “underwater” homeowners, who owe more on their mortgages than their homes are worth. About 4.6 million such homeowners have mortgages backed by Fannie Mae or Freddie Mac, and fully 80% of those owners haven’t missed any mortgage payments.
One way out of the predicament of the underwater owner is the short sale, in which the owner sells the home for less than the balance remaining on the mortgage. It is not a perfect solution that will wipe away all financial problems, but if the mortgage company agrees to a short sale, the underwater owner can “come up for air” by making the sale and paying off at least a portion of the mortgage balance with the proceeds.
In a short sale, holders of first and second mortgages must agree to the deal, because they are accepting less than they are owed. On the whole, short sales are seen as a positive for all concerned—and for
To address these concerns, the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, has recently issued new short sale guidelines. A few different short sale programs will be consolidated into one uniform program, and there
These are the highlights of the new guidelines, which took effect on November 1, 2012:
- A streamlined process for those most in need. To expedite the
process forborrowers who have missed payments, have low credit scores, or have sufferedserious financial hardships, the necessary paperwork to demonstrateneed will be reduced or eliminated.
- Easier and quicker qualification for some borrowers with
certain hardshipswho are current on their payments. Servicerswill be allowed toprocess short sales for these borrowers without any additional approvalfrom Fannie Mae or Freddie Mac. Qualifying hardships include thedeath of a borrower or primary or secondary wage earner in the household, unemployment, divorce, a long term disability, an employment transferor relocation of more than 50 miles one way, increased housing expenses, natural or man made disasters,or a business failure.
- Waiver of right to pursue deficiency judgments. In exchange for a financial contribution, Fannie Mae and Freddie Mac will waive the
right topursue deficiency judgments when a borrower has enough income or assetsto make cash contributions or to sign promissory notes. As part ofthe approval process for short sales, borrowers will be evaluated as totheir ability to cover the shortfall between the mortgage balance and thesales price for the property.
- Relocated military personnel. Members of the Armed Services
who arebeing relocated will automatically be eligible for short sales, even ifthey haven’t missed a payment. They will also be spared the obligationto contribute funds to cover the shortfall from the short sale.
- Up to $6,000 for holders of second mortgages. In the past, second lienholders sometimes impeded the short sale process as
they the highest possible amounts toward what they were owed. As negotiatedfor an incentiveto make the short sale happen sooner rather than later, Fannie Mae and Freddie Mac will now offer up to $6,000 to those lenders whenthe short sale is completed. (But second lienholders will still have the ability to reject short sales if they so desire.)